Starting a new business is an exciting, life-altering endeavor. Historically, it has been America’s entrepreneurial spirit which has pushed us along from the days of the general store up to the bustling multistate corporation. Whether self-taught or equipped with an MBA, all aspiring entrepreneurs have to be aware of a number of essential points when setting up a brand new business. In this article we will discuss in detail several of these points.
One of the first – and most important – things an aspiring entrepreneur must consider is business structure. That is, future businesspeople must decide which business entity is most appropriate for them. Aspiring business owners can choose between the following options: sole proprietorship, LLC, partnership, C Corporation and S Corporation. Depending on the details of a person’s circumstances, each of these options has the potential to be optimal. The sole proprietorship is the easiest entity to set up; however, one drawback of the sole proprietorship is that profits are subjected to the employment tax of 15.3 percent. Before selecting an entity, be sure that you consider every relevant aspect of your situation and then make the decision accordingly.
Another important item for businesspeople is name selection. When creating a new business, the future business owner cannot simply choose any name which suits his or her fancy; the businessperson must select a name which has not already been registered with the state. Whatever name a person decides on, the name must be unique. For this reason, before settling on a particular name, it is important to search your state’s website in order to see whether a given name has already been chosen. Business owners will also need a license before they can begin any commercial activity. Licensing requirements vary state to state and so it is incumbent upon aspiring entrepreneurs to determine the specific requirements which apply in their state.
In the majority of cases, future business owners also need to procure an Employer Identification Number (EIN). EINs are required for corporations, partnerships and all businesses which have employees. Sole proprietorships and single-member LLCs with zero employees are not required to obtain an EIN. The simplest way to obtain an EIN is to apply online on the website of the IRS; applying online will allow businesspeople to receive their EIN immediately. Business owners can also print out a paper application and then mail the form (known as SS4) directly to the IRS.
These are just several of the essential steps an aspiring businessperson must take in order to establish a new business. In addition to these steps, future entrepreneurs will also need to consider a few other things; they will need to determine what accounting method they will use, whether their business is considered a business or a hobby by the IRS, how to add employees, business taxes and so forth. If you’d like to pursue these issues in greater depth, check out the presentation given by our CPA Jessica Chisholm.
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To learn more view the following video from Small Business Webcast